We wanted to get this quick message out to everyone before the weekend as we have been very busy speaking with clients and wanted to reach everyone with what we are thinking.
As the first quarter ended this week, we saw U.S. markets lower from January and Canadian markets slightly higher for the quarter. As mentioned in our last update, volatility was likely to increase and the Trump administrations on again off again tariff approach caused just that over the months of February and March. President Donald Trumps American tariff liberation day arrived on April 2 with the announcement of tariffs for countries across the world. The tariff plan was higher than most analyst were expecting, and the markets reacted with an aggressive one day sell-off we haven’t seen since 2020 followed by another rough day today.
The volatility index has spiked in an extreme way and is now flashing signs of panic. When markets get like this, we recommend taking a deep breath and waiting for the markets to settle down. We understand emotions can get the best of investors and their instinct is to do something or anything. Time has shown that staying the course is the correct thing to do in times of panic and once markets stabilize decisions can be made.
As we moved towards tariff day, the Trump administration was discussing reciprocal tariffs for countries that had big trade deficits. The markets are shocked that instead of retaliatory tariffs, they used numbers based on the ratio of the imports and exports from countries. Likely, the tariff rates we are seeing now will be the maximum ones, and deals will start to be done at lower rates, which should allow the markets to stabilize. Today, Trump sent out a message that Vietnam was negotiating a deal to lower their tariffs. We think we will see many more of these over the next few weeks and months, and the temperature can calm down.
In the end, the Trump administration would like to tax its citizens with these tariffs. They would also like companies to manufacture more in the country to avoid the tariffs. They want to use the revenues they bring in from tariffs to lower tax rates. As tariff rates come down and potentially tax rates come down later in the year, that will be positive for the markets.
We believe we are at an extreme point of panic, and this is the time to wait for things to settle down. The system is in shock right now, and many stocks are selling off. This provides opportunities that we will take advantage of as things settle down, and as news becomes more positive, we will see markets stabilize. Just like the colder days of winter turn into the warmer days of spring and summer, the markets will see better days ahead.
Regards,
Mike, Craig, Darren, Paul & Brent
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